Feasibility of AT & T Inc Doing Business in China - Case Study Example

AT & T Inc: A Feasibility Report (Name) (University) Contents 1.0 Introduction 4 2.0 Market Dynamics 5 2.1 The Trend in the Telecommunications Industry 5 2.2 Players within the Telecommunications Industry 8 2.3 Potential of New Markets 9 2.4 Viability of China as Good Market Location 10 2.5 Competition within this Market 11 3.0 SWOT Analysis 12 3.1 Strength of AT & T Inc 12 3.2 Weaknesses of AT & T Inc 13 3.3 Opportunities of AT & T Inc 14 3.4 Threats 14 4.0 PESTLE Analysis 15 4.1 Political feasibility 15 4.2 Economic Feasibility 15 4.3 Technological Feasibility 16 4.4 Environmental Factors 16 4.5 Legal Considerations 16 5.0 Conclusion 17 6.0 Recommendation 18 AT & T INC Feasibility Report 1.0 Introduction AT & T Inc, a holding company in the United States which is the provider of entertainment, mobile, voice services and internet (Sinnreich, 2012). The company provides telecommunication services not only in America but also across the globe. Products and services offered by the AT & T Inc are inclusive of wireless communication services, which is one technology that has drastically changed the telecommunication services (Cornelissen, 2014). The other products offered by AT & T Inc are data and internet services, local exchange services, video services and long distance services. Additionally, the company manages telecommunication equipment together with networking and wholesale services (Proctor, 2013). The three segments that the company operates under are wireless services, wire line services and international services. Subsidiaries of the company provide services such as wireless voice and data communication services all over the United States and based on roaming agreements, other countries in the world. The wireless segment of the company, AT & T Mobility, provides wireless services to over 120 million subscribers. There is a wide range of data communication services and wireless voice services that have been categorized based on the consumer (Little et al., 2014). AT & T Inc sells different kinds of devices that are wireless enabled such as tablets and notebooks and data cards that are wirelessly enabled. Wire line services of AT & T Inc are mainly categorized into two segments: there is the services segment and the equipment segment. Voice and data services are provided under wire line and these are inclusive of broadband and video. The data services that are offered are reliant on the Internet Protocol technology (Han, 2012). Provision of data is at various speeds and there are digital networks that enable the consumer to create data networks that are internal and these networks enable them to gain access to external data networks (Rappaport, 2014). A number of service providers access networking capacities that are intrastate, interstate and international. The international segment of the company provides regional and international wireless data and voice communication services through Iusacell and Unefon. AT & T Inc is a subsidiary that is wholly owned. Its service provision covers over 26 million customers in the United States (ATT, 2015). In Latin America it covers over 191 million customers. This customer base is exclusive of the other regions in the world. Aside from the wireless, wire line and international services provided by AT & T Inc, there are also other services such as the 4G long term evolution (LTE) mobile coverage. The company’s GigaPower internet access is all fibre and users can download premier content such as live events on television, mobile and computers. The products and services of AT & T Inc are offered under the AT & T brand. With its high profiled status and a large consumer base with great revenue, AT & T Inc stands an excellent chance to enter into other markets in several countries one among them being China. This feasibility report thus discusses the prospective of AT & T Inc in investing in a new market: the Chinese market. 2.0 Market Dynamics 2.1 The Trend in the Telecommunications Industry There has been recent convergence of networks of services with the increased use of IP video over the web and the evolutionary innovation of cellular technology and wireless and high tech mobile applications (Agrawal, 2015). Web experiences have been more personalized and the social media is one of the most remarkable trends of telecommunication technology. Based on a survey by Cisco in the year 2007, assessing how internet activity would be in the following four years, the research predicted the use of internet and other telecommunications services four times the normal activity in that year (Dobbs et al., 2015). The current use of 4G technology is the running trend though companies such as AT & T Inc are investing on the opportunity to venture into 5G system. The move towards using of software based networking systems has highly been voted for as the efficiency of network systems form such a move is bound to increase tenfold. Furthermore, the use of the model of the Internet of Things (IoT), that links all manner of devices into larger and networks is the road to the advancement of telecommunication industries (Gubbi et al., 2013). AT & T Inc is currently working on a smart cities program with IBM that has the ability to let individuals dictate on the lighting and climate of spaces such as rooms and offices. Other avenues such as machine to machine communications are developments in the telecommunications industry that are bound to take the globe to higher and advanced era. Monthly Consumer Internet Traffic worldwide Figure 1: Consumer internet traffic worldwide by years The forecast showed that most of the services available at that time would not be in use in the following four years which is true based on the declined use of services such as voice operations. Current trends in the telecommunications industry are inclusive of technology such as the telepresence and internet of things (IoT). Figure 2: Progressive use of the web The above line graph shows the progressive use of the web in telecommunication over years and the forecast for telecommunication in future. Figure 3: location based service (LBS) of handsets by users worldwide, in millions This illustration shows the increase in the use of mobile networks by the year 2012. 2.2 Players within the Telecommunications Industry AT & T Inc ranks as the second largest telecommunications industry in the United States after Verizon. The market capitalization of AT & T Inc in July 2015 was at $ 180 billion, while in the same month that of Verizon was at $ 193 billion (Yoo, 2014). China Mobile ranks as the largest telecommunications corporation globally having a market capitalization of $ 255 billion. The companies that rival AT & T Inc and Verizon are Sprint and TMUS. Spectrums in the United States are divided into three: low, medium, and high frequency. Sprint has the highest high frequency spectrum based on the analysis of 2015 (Cetinkaya et al., 2013). In the low frequency spectrum AT & T Inc are the market dominants. Key players in the industry utilize fibre and this has earned them a wide consumer base. U-Verse, used by AT & T Inc and FiOS which is used by Verizon have also helped to expand their consumer base. MARKET CAPITALIZATION Figure 4: Market Capitalization in Billions Source: Market Financials 2015 AT & T and Verizon are both integrated players in the telecommunications market in the United States. The wire line communication of AT & T is the largest in the States while Verizon has the largest wireless operations. Wireless telecommunication is the key segment for both of the two companies. Other players in the region are Vodafone and NTT which follow after Verizon and AT & T in market capitalization. 2.3 Potential of New Markets With the dynamic nature of technology the telecommunications services have gone through numerous innovations and the trend is building on. The use of internet of things (IoT) is rapidly gaining favor in the market and is a viable service to offer in the telecommunications market (Da et al., 2014). Using, this latest technology while penetrating the Chinese market is plausible as it has gained worldwide support from consumers utilizing it. New markets that have innovative potential or market potential can enter the Chinese market (Chesbrough, 2013). The adoption of 4G and moving further to create 5G is a remarkable new market and with the evolving technology will enable any company to stand the test of evolving technology. With its international Iusacell and Unefon networks, AT & T Inc has the potential to gain entry into the Chinese market as a foreign investor. The brand AT & T Inc wireless technology that has attracted over 120 million subscribers is a prospective market in the Chinese region since their wireless technology has been affected by poor quality services due to poor competition (Tao, 2014). The intention by AT & T Inc to upgrade its mobile devices will enable the company to stay up to date with the most current technologies. The provision of AT & T Inc’s 4G LTE network that has faster services and high download speeds is an added advantage for creating a new market in the Chinese telecommunication industry. The company can also utilize its innovation strategy by working on the prototype for 5G network as the dynamic nature of technological revolution will soon declare 4G as a network that is outdated (Osseiran et al., 2014). A successful introduction of new products into the market with competitive pricing and personalization of products would have a competitive edge in the new market. Additionally, there is an opportunity to introduce telepresence which is a video related medium of communication that would gain market in the current age of technology. 2.4 Viability of China as Good Market Location With over 900 million telephone connections in China, 641,230,016 mobile subscribers and over 340 million fixed, line subscribers, China is the globe’s fastest growing telecommunication market (Gantz, 2012). The development of telecommunications in the industry is rampant with companies from other countries seeking to invest in the Chinese market as well. The telecommunication industry in the country provides mobile communication which is inclusive of 3G services. Internet services are in addition provided in the company with value added capabilities on the normal internet operations. The market situation in the region is characterized by prices that lack discipline coupled with promotional tactics that are chaotic. The trend of focusing in the increasing of market share has brought a decline to the innovative energy in the telecommunications industry in China (Liao, 2012). Considering the large market available for telecommunications services in China, the country makes a suitable market environment for the investment of telecommunication companies and services. The huge number of subscribers, coupled with few companies that provide telecommunications services is an unquestionable investment opportunity (Guan, 2014). Most of the Chinese community is well versed with the use of communication technology such as handsets and therefore the introduction of new products and services such as the 4G LTE network will serve to spike interest from the consumer base thus generate sales. With this in mind the Chinese market is viable as the situation is arguably a good entry point for foreign companies in that will aid in stabilizing the Chinese telecommunications market. 2.5 Competition within this Market Competition in the Chinese telecommunications market is limited with only three large telecommunications companies: China Mobile, China Unicom and China Railcom. China Mobile, formed out of China Telecom in 2000 is the leader of the telecommunications industry with operations in over 25 provinces in China (Brodsgaard, 2012). Its market control is near 60% and it faces stiff competition from Unicom. China Mobile and China Unicom have been engaged in price wars that are unofficial thus contributing to the provision of lower quality services. China Netcom provides services to 21 provinces and has a consumer base of 94 million subscribers. On the basis of a clear cut perspective, the competition in this region is highly restricted (Guan, 2014). The limited competition among these three companies has brought about devalued services and basic network providers who are uncooperative. The ambition for innovation largely lacks in these companies which has directly affected the quality of services. Based on the intent to get into the Chinese market, AT & T Inc would also face competition from other companies such as Verizon and Sprint. The fact that China Mobile is the highest telecommunication earner worldwide is a point to be put under consideration as it may still retain its consumer base with regards to the efforts put to maintain customer loyalty. The competition situation in China is however still a lucrative leeway for foreign investors to venture into the market as the other platform of expected revenue has been established in China (Yong, 2012). 3.0 SWOT Analysis 3.1 Strength of AT & T Inc As mentioned above, AT & T Inc is among the top major players in telecommunication industry. Currently the company holds a wider market share at 33 % hence putting the company into economic stability and reasonable bargain power (Krause Fund Research Spring, 2014). A company operating in almost all countries in the world indicates a diverse revenue stream and as such, AT & T Inc offers it services to more than 200 countries in the world. Additionally, the stated aspects contribute towards an advantage in new markets especially during brand awareness and attracting newer consumers to purchase the new products. AT & T management skills easily indicates the lack of spectrum to meet expansionary needs especially in the wireless communication sector hence inhibiting newer companies to penetrate into a similar market and offer same services. As per the findings, it is therefore easier for AT & T Inc to be competitive in a new environment compared to new companies in similar environment. The company has also embraced new technology system, the U-verse, which is not among the other competitive industries. The new system generates more than 12 billion annual revenue hence if implemented in a new market, the company is likely to generate more than the stated revenue (Research Markets, 2014). 3.2 Weaknesses of AT & T Inc A decline in revenue collection indicates possibility of the business strength declining. Since 2012, AT & T Inc registered a decline of 2.28 billion (Krause Fund Research Spring, 2014). The main reason for such a decline is the introductions of Apple’s company (AAPL), iPhone 6, wireless networks, and 4G introductions into the market. As such, the recent conducted research indicates that almost 40% of AT & T customers are users of Apple’s and iPhone 6 products. The company faces the challenges of flexibility due to its vast and complex management structure. This indicates that adapting into a new market, China, the company will struggle to adapt into the competitive volatile wireless segments. Additionally, the company is not able to offer a good partnership deal to improve the profit margin after signing into low subsidies products from a newer competitive company. The current FCC regulation and network security inhibits the company from gaining the spectrum and capacity into a new target market. If the challenges are not addressed well in the feasibility study, the likability of additional customers to jump ship from AT & T Inc is very high. 3.3 Opportunities of AT & T Inc AT & T Inc needs to venture into initiatives that will strongly expand its wireless services. The recent acquisitions of DirecTV, the company is able to reach more than 18 million customers with a record of $ 1.5 Billion savings between three to five years. Such an acquisition is essential to imperative implementation into the new target market. As such, the free cash flow generated is important at this phase since the company has chosen heavily to invest in its telecommunication in China. A project being implemented in the already operating countries, which includes the high-speed internet access, VIP and expanding 4G LTE network expected to generate 420 billion in 2017, is a project to be implemented in the new-targeted market soonest. With the identification of the prepaid, Leap wireless need to be implemented in the new market to attract higher percentage of lower income-consumers hence competitive in new market segments. 3.4 Threats As per the interest of AT & T Inc to expand its services to China, the continued priced wars prove to be challenging in the new investments. A competitive industry, Sprint, which is currently offering a slash to customer’s wireless bills by half might harm the AT & T market share ahead. If the company strongly intends to invest in China, then it is important to consider the threat competitive bodies especially in areas of specialization like unlimited talk, transmission speed, accessibility, reliability, price, and text messaging. As such, implementing all the above aspect at lower price services, the technique might diminish the revenue margin with competitors. 4.0 PESTLE Analysis 4.1 Political feasibility Government regulations and legal issues affect the economic stability of China. With an improving consumer rights protection then it is obvious that the multinational companies benefit in doing business with the people of China. As such, the open market will be prosperity and AT & T Inc is likely to benefit in its new ventures in China. The Foreign Trade Policy in China favors AT & T Company for direct investments. Due to high population in China especially in the big city, the good relationship between AT & T Inc and the china people pose an added advantage of wooing more consumers from the country to purchase the new products (Company Laws and Regulations of China, 2012). 4.2 Economic Feasibility Currently China is experiencing a significant GDP growth rate. Among other reasons for the growth, potential urban growth is essential especially if foreign countries are interested in investing in China. As such, the GDP indicates higher consumer purchase power. Increase in urbanization indicates the possibility of embracing new technology hence AT & T Inc can tap the market, also with an added advantage of consumer purchase power in China. Additionally, the labor cost in china is extremely low. Hiring China specialist to work in AT & T Inc greatly save the cost hence availability of cash flow hence improving on revenue and profits margins after implementing the services in China (World Bank Report, 2013) 4.3 Technological Feasibility AT & T Inc partnership with Chinese Telecom industry will be of huge benefit. Since the Chinese Telecom, industry has dominated the Chinese market, the AT & T company need to spearhead the introduction of 4G LTE system into Telecom, which is rated as the fastest and most resourceful services at this stage of life. Signing of the subsidiaries need to be fairly distribute depending on the capabilities of the company. As such, both companies will develop a strong technical capabilities and efficient price advantage. The china economic and institutional reform policies which has shaped the China to be among the leading telecommunication industry offers a conducive environment for AT & T Inc to offer similar services in China ( Lain, 2012) 4.4 Environmental Factors In China, there is diverse availability of labor and skills, which might be helpful during the implementation of AT & T Inc in China. As such, the continuously developing cities prove to be resourceful either in labor, resources or customer consumption for the purchasing of the new products. The Chinese capital market determined by China Government is not bias to any of the China or international organization. The Government therefore increases its expenditure, which improves on the money supply to organizations hence making capital market boom, a dream for any investing company in a country. The densely populated china, with majority of the occupants positioned as a middle class clearly indicates the availability of market to purchase new products from AT & T Inc (Rompenaars, 2012). 4.5 Legal Considerations International foreign countries face more complex task when it comes to legal frameworks. As such, AT & T Inc needs to compliance with the terms and conditions of China government when interested to venture into China business environment. The company needs to fully oblige to the taxation procedures fully without any hitches, which might be positive or negatives towards the profit collected annually. Penalties in place might also affect AT & T Inc Company. Such includes sanctions when things go out of order. The extraterritoriality from AT & T Inc might be influential especially the vulnerability of engaging into activities that might greatly diminish the business competitive in the U.S. market. The AT & T Company need to be sure of legal aspects of both countries before engaging into a newer business ventures (Griffich 2013). 5.0 Conclusion Conclusively, Telecommunication industry looks appealing to any giant investors from any State. Compared to other business entity, telecommunication industry offers a conservative account a good source of income compared to other industries. The SWOT analysis of AT & T Inc indicates that the company is a vast wireless carriers company, which has been generating solid cash flow with the capabilities of navigating during financial market crisis within the area of telecommunication services. To maintain the cash flow margin, AT & T Inc continues to come up with new marketing ideas especially the next platform, the U-verse video offerings to all subscribers and currently the DirecTV project. The strong brand loyalties from AT & T Inc keeps attracting newer customers while maintain the already identified customers. Reaching the targeted market successfully, after the implementation of new projects, the results easily advocates for the strength of AT & T Inc. As such, the company continues to have a solid market share within the vital cities embracing its products. However, to various achievements, the company experience challenges especially on issues of flexibility on its marketing strategy. Counter attacking the competitive bodies which offer cheap service alarms the AT & T inc if it chooses the similar approach then the company diminishes the revenue margins from its competitors hence a poor marketing technique of ads on display. The PESTLE analysis findings indicate that AT & T Inc greatly depends on China effective relationship purposefully to introduce a new market system in China. The success of the new project depends with china political, economic, technological, environmental, and legal considerations of china. From the feasibility study, At & T Inc might greatly benefit from the new marketing strategy in China since almost all aspect of PESTLE analysis satisfies the interest of the company. The main challenge at this phase is the legal consideration which greatly differ between states hence negotiations need to be in place to fix the legal frameworks so that it benefits both the local, international and foreign investors 6.0 Recommendation As per the SWOT analysis, the company should continue to spearhead its wireless network capabilities across its member’s states and the newly targeted market with the production of LTE technology and 4G-network coverage. For the developing countries, the company needs to continue investing with the GSM transmissions for the 3G & 2G data. The company should also continue to expand its services locally as it targets the international market possibilities. Focusing on data or broadband offerings, while engaging into a new market in China, the company needs to take the advantage of telecommunication industry by modifying the systems to fully increase the data services, capacity and telecommunication spectrum. To tackle the flexibility issue, the company should focus on restructuring its marketing structure. As such, the company will not be struggling to adapt into new environment in a wireless segment as per the current situation. When technical team makes such changes, the company will be able to compete with new smaller, more nimble company posing the competitive challenges. Changing the FCC regulations might help the company to have the capability of wider capacity and spectrum. AT & T Inc should be opportunistic especially on aspect of Acquisitions and a Fully-Developed Next Platform. The main agenda of such procedural activities is to boost the cash flow system of AT & T Inc while it continues to attract a grater number of low-income consumers for its services. Additionally the environmental situation of China offering cheap labor, it is advisable for the company to hire the people of China hence saving the cost of implementation phase of the project. Additionally, offering employment opportunities to the qualified persons in China to work in AT & T Inc is an added advantage. The reasons behind this are a cultural aspect of winning consumers purchase power since it is the people of china promoting the new product. It is recommended that it is proper to implement a new telecommunication system as per the technological capabilities of the host nation. As such, the company avoids the possibilities of going out of the order regarding the legal considerations put in place. 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